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Given the high risk, investors likely want a shot of earning at least a 10x return. $157 billion x 10 = $1.57 trillion, greater than META's current market capit

• alex_young 2y ago
  Maybe they view it as at least a sure thing for a 2x return... Another issue here is that at this value level they are now required to become a public company and a direct competitor to their largest partners. It will be interesting to see how the competitive landscape changes.
  • cs702 2y ago
    My understanding is that the company is burning $0.5+ to $1+ billion each month. I'd say that's very high risk.
    • lumost 2y ago
      That is also much lower than Uber at its peak.
      • smt88 2y ago
        Uber was a literally life-changing product with an obvious value for anyone. LLMs have neither benefit.
        • choilive 2y ago
          Every cafe, airport, school I've been to has people using ChatGPT or its competitors. Its obviously valuable for almost anyone. Just like how people cant imagine life before smartphones, people wont be able to imagine life before LLMs became ubiquitous. Its everywhere.
          • thehappypm 2y ago
            True, but there isn’t really a moat for text LLMs. Llama is open source, Gemini is basically free.
            • lumost 2y ago
              define "moat", Open source search engines and competitive scraping strategies were built in the early 2000s. The Google search moat has always been that they were better for 5-6 years - and then they were the default. Once they were the default option, they merely had to be the "same" as other options. If someone were to make a 1:1 clone of google with ~5% fewer ads - I do not believe they would break get a substantial market share of web search traffic (see bing).
              • thehappypm 2y ago
                Google has decades of people making it their habit as a pretty strong moat. They have inertia that chap bought simply do not yet. People have been using ChatGPT for a year or two now, it’s much easier for them to switch to another one.
          • what 2y ago
            I’m sorry, but what? How can you tell people at the cafe/airport/school are using LLMs?
            • johnthewise 2y ago
              You just walk around and see chatgpt interface on their screens?
      • paxys 2y ago
        Uber's spending was directly attributed to growth. They were launching in new countries, new cities, new markets every day, and that required burning through an immense amount of money. Of course that growth didn't need to last forever, and once the service was fairly established everywhere the spending stopped. OpenAI on the other hand has to spend billions to train every new iteration of their model and still loses money on every query you make. They can't scale their way out of the problem – scaling will only make it worse. They are counting on (1) the price of GPUs to come down in the near term or (2) the development of AGI, and neither of these may realistically happen.
    • moralestapia 2y ago
      That's just not true. Source: a two-digit division. Previous to this, they had about ~10B (via MS), and they've been operating for about 2 years at this scale. Unless they got this $$$ like a week away from being bankrupt, which I highly doubt. Note: I'm not arguing they're profitable.
      • Yizahi 2y ago
        It is speculated that a majority of those 10B is Azure cloud credits. Basically company scrip. You can't pay Nvidia in the scrip, or the city electricity department, or even the salary.
• yumraj 2y ago
  For “an” AI company, that can achieve market dominance, to achieve 1.57T market cap is not unrealistic. I think the question is, is OpenAI that company and is market dominance possible given all other players? I believe some investors are betting that it is OpenAI, while you and others are sceptic. Personally I agree with you, or rather hope that it is not, primarily as I don’t trust Sam Altman and wouldn’t want him to have that power. But so far things are looking good for OpenAI.
  • tux3 2y ago
    OpenAI feels like the most politicaly active with its storylines, flashy backstabs, and other intrigue. But as far as the technology, we're drowning in a flood of good AI models, which are all neck to neck in benchmarks. Claude might be slightly stronger for my use, but only by a hair. Gemini might be slightly behind, but it has a natural mass market platform with Android I don't see how a single player sticks their neck out without being copied within a few months. There is — still — no moat.
• senko 2y ago
  At their stage and size, it's probably 3x-5x. Still sky high!
• Workaccount2 2y ago
  >You'll need it! If they can IPO, they will easily hit a $1.5T valuation. All Altman would have to do is follow what Elon did with Tesla. Lots of massive promises marinated in trending hype that tickles the hearts of dumb money. No need to deliver, just keep promising. He is already doing it.
  • mcast 2y ago
    The difference is Tesla had a moat with the electric car market, there were no affordable and practical EVs 10 years ago. OpenAI is surrounded by competition and Meta is constantly releasing Llama weights to break up any closed source monopolies.
    • Workaccount2 2y ago
      Tesla is still overvalued today with a moat that is more a puddle than anything. Elon realized that cars weren't gonna carry the hype anymore, so now it's all robotaxi, which will almost certainly be more vaporware.
      • mattmaroon 2y ago
        I think he’s even past robo taxi and onto AI and robots that build robots that build robotaxis. I wish I were joking.
    • smt88 2y ago
      The Nissan Leaf was far more affordable than a Tesla 10 years ago and very practical for anyone living in a city.
      • changing1999 2y ago
        While it was an affordable vehicle, saying that it was practical is an overstatement. Charging networks were abysmal and actually still are for non-Tesla compatible vehicles. If you had experience using EVgo and similar small networks you probably wouldn't sound as confident.
• foobarqux 2y ago
  You need to consider time and baseline growth. Google tells me Nasdaq CAGR for the past 17 years is around 17% so that will be just under 5x over 10 years. 10x over 10 years will be about 25%. High, but not as crazy as you suggest.
• m3kw9 2y ago
  The investor will probably have no say or be told to stfu and leave if they try to do some stuff like forming an activist group
• tqi 2y ago
  I think later rounds generally have lower return expectations - if you assume the stock market will return ~10%/year, you probably only need it to 2X by IPO time (depending on how long that takes) for your overall fund's IRR to beat the stock market.
  • mattmaroon 2y ago
    You would if it were the fund’s only investment. But it won’t be. And this is still not a mature company, as their expenses currently vastly outnumber revenue, so there’s always a chance of failure. Your general sense that the later stage higher dollar figure raises look for a lower multiple than the earlier ones is correct, but they’d consider 2x a dud.
• jsheard 2y ago
  It's fine, Sam's bulletproof plan is to build AGI (how hard could it be) and then ask the AGI how they can make a return on their investments. https://www.threads.net/@nixcraft/post/C5vj0naNlEq https://www.threads.net/@nixcraft/post/C5vj0naNlEq If they haven't built AGI yet that just means you should give them more billions so they can build the AGI. You wouldn't want your earlier investments to go to waste, right?
  • baq 2y ago
    Honestly, it isn't a bad plan at all. Assuming money even makes sense in a world with AGI, that is.
    • 0cf8612b2e1e 2y ago
      In the Star Trek/Culture/Commonwealth equally distributed, benevolent AI, sure. In the I’ve-got-mine reality, I assume only the select few can speak with the AI and use it to control the serfs.
      • baq 2y ago
        I mean, it isn't a bad plan for VCs. Never said it's a good plan for us peasants. My opinion of sama is 'selling utopia, implementing dystopia' and that's assuming he's playing clean, which he obviously isn't. As for a post-money world, if AGI can do every economically viable thing better than any human, the rational economic agent will at the very least let go all humans from all jobs.
      • philipkglass 2y ago
        There's no future where OpenAI makes everyone else a "serf" though. In 1948 certain Americans imagined that the US could rule the Earth because it got the atomic bomb first, and they naively imagined that other countries would take a generation to catch up. In reality the USSR had its own atomic bomb by 1949. That's what the competition with OpenAI looks like to me. There are at least three other American companies with near-peer models plus strong open-weights models coming from multiple countries. No single institution or country is going to end up with a ruling-the-Earth lead in AI.
• baq 2y ago
  If everyone is building datacenters, sell nuclear reactors.
• mirekrusin 2y ago
  Billion dollars isn't cool, you know what is? A trillion dollars.
• danielmarkbruce 2y ago
  This is a company at a $4 bill annual run rate. In times gone by this would be a public company already. It's just an investment in a company with almost 2000 employees, revenue, products, brand etc. It's not an early stage VC investment, they aren't looking for a 10x. The legal and compliance regime + depth of private capital + fear of reported vol in the US has made private investing the new public investing.
  • s1artibartfast 2y ago
    Expected return is set by risk and upside, not offering size. What do you think the risk of ruin is here? I think there is a substantial chance that Open AI wont exist in 5 years.
    • danielmarkbruce 2y ago
      There was an implication in there on risk. If you don't believe a company doing $4 bill of revenue is significantly less risky than the average VC investment, you might be in dreamworld.
      • s1artibartfast 2y ago
        My understanding is that it is 4B of losses, not revenue.
        • danielmarkbruce 2y ago
          Both are approximately true. But, anything software has some accounting for things (like training a model) that really should be categorized as capex instead of opex and it distorts the numbers.
          • s1artibartfast 2y ago
            My understanding was that total revenue was an order of magnitude lower, in the multi-millions.
• mattmaroon 2y ago
  If they accomplish AGI first, they will be the world’s most valuable company, by far. If they fall short of AGI there are still many ways a more limited but still quite useful AI might make them worth far more than Meta. I don’t know how to handicap the odds of them doing either of these at all, but they would seem to have the best chance at it of anyone right now.
  • changing1999 2y ago
    Aren't they proving the opposite of your proposed alternative already? A limited AI is not making them money and since every new model becomes obsolete within a year, they can't just stop and enjoy the benefits of the current model.
    • mattmaroon 2y ago
      The fact that it isn’t making money now isn’t indicative it never will. I can think of a lot of very large tech companies who people once said the same about.
    • Nathanael_M 2y ago
      It’s an arms race, then, no? Whichever company can survive the burn can sit on their LLaurels and recoup?
      • changing1999 2y ago
        That's the thing, nothing points to a world with a single winner in AI models. I get what you are saying, but not sure OpenAI can survive the burn unless they build an unmatchable AGI. And that's pure speculation at this point.
        • Nathanael_M 2y ago
          I mean, someone needs to rise to the top, unless society as a whole just says "There's no value here." and frankly there's too much real value right now for that. So someone's surviving, at least at the service level. Maybe they just end up building off of open source models, but I can't see how the best brains in the business don't find a way to get paid to make these models. Am I missing something?
• adabyron 2y ago
  Don't some of these investors, such as Microsoft get access to run the models on their own servers as well as other benefits? I thought Satya said Microsoft had access to everything during the Altman debacle.
  • cs702 2y ago
    My understanding is that Microsoft has already earned a large return, from incremental Azure revenues.
• jesseab 2y ago
  Investors probably aren't expecting a 10x return on a late stage investment like this.
• adastra22 2y ago
  The 10x return is on the investment amount, not the total valuation. And is a rule of thumb for early stage companies, not late rounds like this.
• itkovian_ 2y ago
  I remember when openai first raised and had the 100x cap and everyone said that was ridiculous and insane and of course they're not going to 100x from 1b... That would require them to become a 100b company!